THE FACEBOOK LAWSUIT: Here's What Happens Next -- And Who Is Likely To Pay

http://ceoworld.biz/ceo/wp-content/uploads/2009/09/Mark-Zuckerberg.jpg Last night, we wrote about the amended lawsuit that Paul Ceglia has filed against Mark Zuckerberg and Facebook claiming that Ceglia owned 50% of the "project" that became Facebook back in 2004.

Today, we have talked to corporate attorneys and others with the aim of figuring out:

What happens next

Who is exposed

We have also been screamed at in frustration by a person familiar with one side's view of this matter. Even a fool would see instantly that the "emails" and "contract" and claims of the "convicted felon" Ceglia are patently absurd, the person roared. The person was disgusted and disappointed that we were giving the lawsuit even a moment's consideration.

(You might as well know everything.)

WHAT HAPPENS NEXT?

The lawsuit has been filed in federal court in the state of New York.

Facebook will almost certainly file a motion to dismiss the lawsuit. Facebook will presumably cite Ceglia's criminal record as a convicted felon (valid concern), the apparent absurdity of Ceglia taking 6 years to file the lawsuit (valid concern), and many other factors as obvious grounds for dismissal.

Ceglia's law firm will oppose the motion to dismiss.

Paul Ceglia Classmates.com http://www.classmates.com/directory/public/memberprofile/list.htm?regId=8685615405 The judge will consider the motions and, very likely, deny Facebook's motion to dismiss. Why will the judge deny Facebook's motion to dismiss? Because, unless it is patently obvious from the evidence that the evidence has been fabricated, there is plenty of evidence suggesting that the case should go through to discovery.

At this point, Facebook and Ceglia will likely have settlement discussions, if they haven't had them already. Facebook will be on the defensive, because the judge will have rejected the motion to dismiss. But if Facebook firmly believes the evidence is "fake," as it has contended, Facebook won't need to be that defensive. If the lawsuit is settled here for a de minimus amount of money, we will likely be able to conclude that the evidence is not very strong (or, worse, bogus).

If the parties don't settle, the case will go to "discovery." In discovery, each side will have to share its evidence with the other side, or at least allow the other side to analyze its evidence. This is when Facebook will bring in forensic experts to analyze Ceglia's emails, hard drive, and the contract. If the experts conclude that the evidence is fake, the power will swing to Facebook. If the experts conclude that the evidence is real (or at least can't be proven to be fake), the power will swing to Ceglia.

Unless Facebook is certain the evidence is fake, going to discovery will be risky. If Facebook's experts can't prove the evidence is fake, it may be hard for Facebook to persuade a jury that it is fake. And if a jury can't be persuaded that it's fake, the jury might award Ceglia untold amounts of money.

After discovery, the two sides will either settle, or proceed to trial. If the evidence appears to be real, and/or Facebook cannot prove that it is fake, Facebook would be unlikely to go to trial (in our opinion). Especially in a jury trial, Facebook would be highly exposed to damages.

WHO IS EXPOSED?

If all of Ceglia's allegations were deemed true by a court, there would be two implications:

Mark Zuckerberg would have misled Facebook (the company) about the ownership of the original intellectual property

Facebook would have misled its investors

Facebook's misleading of its investors would have been based on Mark Zuckerberg having misled Facebook, so the ultimate liability would rest with Mark Zuckerberg.

Facebook's current investors, however, presumably will not want to risk that their ownership of the company might be placed in question, so they might urge the company to settle the lawsuit before anything is determined by a court. In a settlement, the company would likely cover any settlement costs.

So, both Mark Zuckerberg and Facebook are exposed.

ARE WE (AND YOU) CRAZY TO DEVOTE EVEN A MOMENT TO CONSIDER ING THE POSSIBILITY THAT THESE CLAIMS MIGHT BE TRUE?

We don't think so.

Yes, on their face, the claims sound preposterous. And there is at least one major question that Paul Ceglia will have to answer that he has not yet answered persuasively. And there is also at least one logical inconsistency that supports the idea that the whole story is fabricated.

But, on the other hand, there is plenty to suggest that the claims might actually be true. These factors include:

Mark Zuckerberg's age and attitude at the time: He was a sophomore in a dorm room, not a professional entrepreneur or businessman.

The detailed evidence. More than a dozen purported emails and a purported contract. That's a lot of documents to fabricate.

The penalties and risks that would stem from submitting fake documents as evidence in a federal court. If Ceglia faked these documents, he has committed criminal fraud. If the fabrication is detectable, the DOJ will almost certainly get involved and send Ceglia to jail. If you're set on defrauding someone, there are probably easier and less-high-profile targets.

The fact that a major law firm--DLA Piper--has examined the evidence and decided to represent Ceglia. One of the few things lawyers get disciplined for, one corporate attorney told us, is encouraging clients to fabricate evidence (or knowingly using fabricated evidence). DLA Piper, furthermore, is likely being paid on contingency--and, in the meantime, it will likely have to fund the litigation itself. And this lawsuit could get expensive in a hurry.

The apparent absurdity of the claims. If you're going to make up a story, fabricate documents, and try to fake your way into a settlement, you'd probably be advised to come up with a story that is easier to believe than that you had a contract for 50% ownership of what quickly became the hottest company on the planet and you just forgot about it.

The two big questions that suggest the claim is bogus, meanwhile, are as follows:

Why did Ceglia wait 6 years to file the claim? Again, Ceglia has said he just forgot about the contract, which sounds hard to believe, especially given the level of stress his partnership with Mark Zuckerberg caused him during the time they allegedly worked together. (See the emails). But, then, we don't know what else was going on in Ceglia's life at the time. Maybe he got busy with other stuff. Maybe he had kids. Maybe he was drunk for 6 years. Maybe all of the above.

If Mark Zuckerberg really had the idea for a site called "the face book" 8 months before he was approached by the Winklevosses, why didn't he produce one of his emails to Ceglia when he was sued by the Winklevosses for stealing their idea? Mark Zuckerberg and Facebook paid the Winklevoss twins $65 million (now more than $100 million) to settle claims that Mark had stolen their idea. If Mark had not, in fact, stolen their idea--and if Mark had emails to prove that--why wouldn't he have produced these emails in the Winklevoss lawsuit?

One answer to the second question may be that, by the time the Winklevosses sued him, Mark Zuckerberg thought Paul Ceglia was gone for good. By that time, don't forget, Mark had long since found another source of capital (Eduardo Saverin), expanded Facebook without Ceglia's help, and divided up the ownership of Facebook among his dorm-room partners, including Eduardo Saverin. And don't forget that Facebook was Mark's idea, not Ceglia's, and that Ceglia contributed only $2,000 for his "50%" while Saverin only got a fraction of that for $15,000.

How embarrassing would it have been for Mark to suddenly have to admit six months after the founding that there was someone else he had promised half the project to in exchange for $2,000, especially when Facebook had been Mark's idea all along? Better to send Ceglia a note saying he would pay him his $2,000 back, which is what Ceglia says Mark, in fact, did.

Another possibility is that Mark had already deleted all the emails to and from Ceglia, including the ones with the contract attached. It would be hard for Mark to have produced emails he no longer had. (And Mark's having deleted the emails, by the way, would explain why Facebook is confident that Ceglia's emails are fake: The emails wouldn't have appeared on Mark's hard drives.)

BOTTOM LINE

Facebook says Ceglia's evidence is fake, and it may well be. If we get further insight into why it is (or isn't), we'll let you know here. In the meantime, if you know anything, feel free to reach out: hblodget@businessinsider.com.